How to Transfer a 457b to an Annuity
Jason Stolz CLTC, CRPC
Rolling over or transferring a 457b plan to an annuity can help convert your deferred compensation savings into lifetime income while preserving tax advantages. 457(b) plans are popular among state and local government employees as well as certain nonprofits, allowing pre-tax or Roth contributions with flexible withdrawal options. When you retire or separate from service, transferring your balance into a qualified annuity keeps your money growing tax-deferred—and turns your accumulated savings into a structured, guaranteed income plan you can’t outlive.
If you’re new to these plans, start with how a 457(b) works to understand contribution limits, deferral options, and early withdrawal rules. Then explore how annuities can provide stable income and optional spousal protection while maintaining full tax-deferred treatment during transfer.
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Who Can Transfer a 457(b) to an Annuity?
Eligible participants include employees of state and local governments and certain nonprofits. Once you retire or leave employment, you can roll over your 457(b) into:
- A qualified fixed annuity (MYGA) for multi-year guaranteed growth before starting income.
- A fixed indexed annuity to capture potential upside with downside protection and optional income riders.
- An immediate annuity for lifetime income starting within the first year of purchase.
All options maintain tax deferral when executed as a direct trustee-to-trustee transfer. For comparison, review how to transfer an IRA to an annuity—the same steps apply for 457(b) balances.
Why Consider a 457(b) to Annuity Transfer?
Transferring your deferred compensation plan to a personal annuity provides control and stability during retirement. It helps you:
- Lock in guaranteed income: Create a personal pension with lifetime payout options.
- Protect principal: Fixed and indexed annuities shield savings from market losses.
- Customize beneficiaries: Flexible payout and annuity death benefits preserve assets for heirs.
- Control timing: Decide when to start income, unlike mandatory pension payout schedules.
Step-by-Step: How to Transfer a 457(b) to an Annuity
- Request plan documents: Ask your 457(b) administrator for a distribution or rollover form outlining your options.
- Choose an annuity type: Decide between fixed, indexed, or immediate annuities based on your income goals.
- Establish the receiving account: The annuity carrier sets up a qualified account ready for rollover funds.
- Use direct transfer paperwork: Avoid checks made payable to you—ensure it’s trustee-to-trustee to preserve tax deferral. See what is a direct rollover.
- Align your income plan: Coordinate start dates and withdrawal amounts with Social Security and other accounts.
Tax Treatment of 457(b) Rollovers
When rolled directly to a qualified annuity, your 457(b) assets remain tax-deferred. Later, annuity income or withdrawals are taxed as ordinary income. Roth 457(b) balances remain tax-free if the five-year rule is met. Avoid having the funds sent to you directly—doing so could trigger immediate taxation and penalties.
457(b) Plan vs. Annuity — At a Glance
| Feature | 457(b) Plan | Personal Annuity |
|---|---|---|
| Purpose | Defers compensation and grows tax-deferred | Provides predictable income and optional growth |
| Investment Menu | Limited to plan-selected funds | Shop carriers and compare current rates |
| Payout Options | Typically lump sum or fixed payments | Immediate, deferred, or lifetime options with riders |
| Liquidity | Plan rules limit early access | Varies by contract; see free-withdrawal provisions |
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FAQs: 457(b) to Annuity Transfers
Can I roll my 457(b) into an annuity without paying taxes?
Yes. A direct trustee-to-trustee rollover maintains tax deferral. You’ll only pay taxes when you begin withdrawals or annuity income later.
Do 457(b) plans have early withdrawal penalties?
No. Governmental 457(b) plans allow penalty-free withdrawals after separation from service, even before age 59½. However, taxes still apply to pre-tax funds.
Which annuities accept 457(b) rollovers?
Most fixed and fixed indexed annuities accept qualified rollovers from 457(b) accounts. The funds retain tax-deferred status inside the contract.
What are the main benefits of transferring to an annuity?
Guaranteed lifetime income, principal protection, and the ability to structure spousal or beneficiary payouts—features not always offered in a 457(b) plan.
Can I convert my 457(b) to a Roth annuity?
Yes, if your plan allows Roth conversions. Taxes would be due in the year of conversion, but future qualified withdrawals are tax-free.
How long does the transfer take?
Most direct rollovers are completed within 2–4 weeks, depending on plan processing times and carrier coordination.
Can my spouse continue income if I pass away?
Yes. Joint-life or survivor income riders allow benefits to continue for your spouse. Learn more at annuity beneficiary death benefits.
